Brazil, Russia, India, China and South Africa to Decide on Bank Creation at Summit in Mid-July

ByAndrey OstroukhJuly 9, 2014 2:47 a.m. ET

MOSCOW—The five major emerging national economies known by the acronym BRICS will open a development bank by 2016 and create an alternative to the International Monetary Fund to support the bloc's economies, Russia's finance minister said Wednesday.

Brazil, Russia, India, China and South Africa decided to create the bank in 2013, as they saw investors pull money away from emerging economics, hurting their currencies, amid expectations that the U.S. would scale back its economic stimulus program. The move comes at a time when Moscow is facing antagonism in the West for the annexation of Ukraine's region of Crimea and is an exile from the Group of Eight leading industrialized economies.

Russia's Finance Minister Anton Siluanov said BRICS will make a decision on the creation of the bank at the next summit in Brazil in mid-July. The entity will be called the "New Development Bank."

The bank will focus on BRICS infrastructure projects, but will be also open to new members from the United Nations, Mr. Siluanov said.

Russia's Finance Minister said that each BRICS country will contribute $2 billion to the bank's funds from their budgets over the next seven years. The bank's maximum size, or so-called authorized capital, will be set at $100 billion.

The bank's headquarters will be located either in Shanghai or in New Delhi, Mr. Siluanov said. He declined to reveal Moscow's preference but said that Russia will seek managing positions at the New Development Bank. The bank's governor will be re-elected every five years.

BRICS will also consider creating a fund, which Mr. Siluanov dubbed a "mini IMF." China would contribute $41 billion to this fund, another $5 billion would come from South Africa, while Russia, Brazil and India would each provide $18 billion from their foreign exchange reserves.

The fund is designed to serve as an emergency coffer for BRICS if a member suffers from capital flight or the risk of currency depreciation. Currency swap operations with the fund could be used as a precautionary measure or as an aid to deal with an economic crisis post factum, Mr. Siluanov said.

Putin: No plans for BRICS military, political alliancePublished time: July 15, 2014 02:38

The BRICS countries want to challenge the international financial system’s dependency on US policies and strengthen the rule of international law, Vladimir Putin said. He stressed, however, that there are no plans for a military or political alliance.

“In the BRICS case we see a whole set of coinciding strategic interests,” Russia’s President Vladimir Putin said in an exclusive interview with Itar-Tass.

Read the full interview with President Vladimir Putin

“First of all, this is the common intention to reform the international monetary and financial system. In the present form it is unjust to the BRICS countries and to new economies in general. We should take a more active part in the IMF and the World Bank's decision-making system. The international monetary system itself depends a lot on the US dollar, or, to be precise, on the monetary and financial policy of the US authorities. The BRICS countries want to change this,”Putin said.

In the modern world, the factor of common borders does not play a defining role; global processes encourage countries to join efforts as challenges and problems become shared, he said.

“Another long-term common interest of the association’s members is strengthening the rule of international law and the UN’s leading role in the international system,” the president added. “To be honest, without Russia’s and China's principled position on Syria in the Security Council the events in that country would have followed the Libyan and Iraqi scenario.”

It is clear that all the BRICS economies need serious infrastructure modernization, Putin said. “Our initiative to establish the Development Bank is aimed at expanding cooperation in this sphere.”

“Another important initiative that is underway is creating a BRICS pool of foreign currency reserves. It will become a safety net to help us form a joint response to economic challenges.”

Russian President Vladimir Putin (L) and Brazilian President Dilma Rousseff shake hands during a meeting at Planalto Palace in Brasilia on July 14, 2014 (AFP Photo)

Russian President Vladimir Putin (L) and Brazilian President Dilma Rousseff shake hands during a meeting at Planalto Palace in Brasilia on July 14, 2014 (AFP Photo)

Putin emphasized that both the Development Bank and the foreign currency reserves pool are practical steps for the BRICS countries, intended to strengthen international financial architecture and make it more balanced and just.

“It is in our common interest to use the complementarity of national economies to the maximum. Cooperation opportunities are great indeed. This is the market with almost three billion consumers. The BRICS countries have unique natural resources and a substantial technological, financial and industrial potential.”

Another important question that BRICS nations are going to raise at the summit is the increasing cases of unilateral sanctions.

“Recently Russia has been exposed to a sanction attack from the United States and its allies. We are grateful to our BRICS partners who have criticised such practices in different forms,” Putin said.

“Together we should think about a system of measures that would help prevent the harassment of countries that do not agree with some foreign policy decisions made by the United States and their allies, but would promote a civilised dialogue on all points at issue based on mutual respect.”

Cooperation in setting rules of responsible behavior in the global information space is another important issue, the Russian president said.

“Such rules must be based on the principles of respect for a country's sovereignty, non-interference in domestic affairs, observance of human rights and freedoms, as well as equal rights for all countries to participate in Internet management. I think our joint efforts will ensure that the BRICS countries hold a leading position in strengthening international information security.”

“We are planning to shape a joint information policy in the international arena to support BRICS’ activity and to present a more unbiased picture of the world.”

“I believe it is time to raise the BRICS' role to a new level and to make our association an unalienable part of the global management system for sustainable development.”

BRICS establish $100bn bank and currency reserves to cut out Western dominance

Published time: July 15, 2014 18:14 Edited time: July 16, 2014 07:56

The group of emerging economies signed the long-anticipated document to create the $100 bn BRICS Development Bank and a reserve currency pool worth over another $100 bn. Both will counter the influence of Western-based lending institutions and the dollar.

The new bank will provide money for infrastructure and development projects in BRICS countries, and unlike the IMF or World Bank, each nation has equal say, regardless of GDP size.

Each BRICS member is expected to put an equal share into establishing the startup capital of $50 billion with a goal to reach $100 billion. The BRICS bank will be headquartered in Shanghai, India will preside as president the first year, and Russia will be the chairman of the representatives.

“BRICS Bank will be one of the major multilateral development finance institutions in this world,” Russian President Vladimir Putin said on Tuesday at the 6th BRICS summit in Fortaleza, Brazil.

The big launch of the BRICS bank is seen as a first step to break the dominance of the US dollar in global trade, as well as dollar-backed institutions such as the International Monetary Fund (IMF) and the World Bank, both US-based institutions BRICS countries have little influence within.

“In terms of escalating international competition the task of activating the trade and investment cooperation between BRICS member states becomes important,” Putin said.

Russia, Brazil, India, China and South Africa account for 11 percent of global capital investment, and trade turnover almost doubled in the last 5 years, the president reminded.

Each country will send either their finance minister or Central Bank chair to the bank’s representative board.

Membership may not just be limited to just BRICS nations, either. Future members could include countries in other emerging markets blocs, such as Mexico, Indonesia, or Argentina, once it sorts out its debt burden.

BRICS represents 42 percent of the world’s population and roughly 20 percent of the world’s economy based on GDP, and 30 percent of the world’s GDP based on PPP, a more accurate reading of the real economy. Total trade between the countries is $6.14 trillion, or nearly 17 percent of the world’s total.

The $100 billion crisis lending fund, called the Contingent Reserve Arrangement (CRA), was also established. China will contribute the lion’s share, about $41 billion, Russia, Brazil and India will chip in $18 billion, and South Africa, the newest member of the economic bloc, will contribute $5 billion.

The idea is that the creation of the bank will lessen dependence on the West and create a more multi-polar world, at least financially.

“This mechanism creates the foundation for an effective protection of our national economies from a crisis in financial markets," Russian President Vladimir Putin said.

The group has already created the BRICS Stock Alliance an initiative to cross list derivatives to smooth the path for international investors interested in emerging markets.

Russia has also proposed the countries come together under an energy alliance that will include a fuel reserve, as well as an institute for energy policy

"We propose the establishment of the Energy Association of BRICS. Under this ‘umbrella’, a Fuel Reserve Bank and BRICS Energy Policy Institute could be set up,” Putin said.

Documents on cooperation between BRICS export credit agencies and an agreement of cooperation on innovation were also inked.

Bringing emerging economies closer has become vital at a time when the world is guttered by the financial crisis and BRICS countries can’t remain above international problems, said Brazil's President Dilma Rousseff.

She cautioned the world not to see BRICS deals as a desire to dominate.